The Negative Effect of Economic Policy Uncertainty on Presidential Rhetorical Optimism about the Economy in the United States

By Olds, Christopher | Economics, Management and Financial Markets, June 2015 | Go to article overview

The Negative Effect of Economic Policy Uncertainty on Presidential Rhetorical Optimism about the Economy in the United States


Olds, Christopher, Economics, Management and Financial Markets


1. Introduction

Baker et al. (2013) have created and made publicly available a historical measure of economic policy uncertainty dating back several decades using a content analysis evaluation of major newspapers in the United States. The original intention of the research agenda of Baker et al. (2013) was to see if economic policy uncertainty hinders recovery from economic downturns by compelling companies and individuals to limit acts that can stimulate growth, such as investment, hiring, and consumption. Their analyses suggest that an incr ease in economic policy uncertainty does have potentially da ma ging results to the economy, as higher economic policy uncertainty can result in decreases in employment levels, as well as real industrial production. Their findings suggest economic policy uncertainty does have profound implications on the economy.

One area the research agenda of Baker et al. (2013) has yet to explore in much depth is whether economic policy uncertainty has implications for the behavior of prominent political actors in relation to the economy. More specifically, whether changes in economic policy uncertainty result in changes in the rhetorical tone of the president about the economy has yet to be explored. This is important, since save for those periods where there is a major international crisis, no other issue is discussed more by the president than the health of the economy (Wood, 2007: 4).

Presidents are perceived as authoritative sources as to what is transpiring in the economy. The public and firms, reflecting on the prominent institutional position of the president, see the extent of resources available to the president regarding information about the economy. As a result, they are given appropriate reason to believe the president has information on the economy they do not directly or immediately possess (Wood, 2007: 167). This is reinforced by the fact that the mass media will cover the economic concerns expressed by the president (Eshbaugh-Soha and Peake, 2005), suggesting the president's remarks about the economy have enough credibility to be covered and examined by the mass media. The mass media can cover an issue in such a way that the public gives it heightened attention when evaluating the president (Krosnick and Kinder, 1990). All of these considerations factor into why changes in economic policy uncertainty, and the response of the president to these changes, are worthy of empirical examination.

If the economy is often a major focus of the president, it is worthwhile to assess whether higher economic policy uncertainty compels the president to increase or decrease the level of optimism expressed when speaking about conditions pertaining to the economy. This is something heretofore that has been unexplored, given the lack of a time-refined indicator of economic policy uncertainty before the efforts of Baker et al. (2013). Prior research by B. Dan Wood (2007) already developed a measure of the extent of optimism expressed by the president in public remarks regarding the economy, but did not contrast it with a legitimate indicator of economic policy uncertainty. Using the information about economic policy uncertainty devised by Baker et al. (2013), as well as the information on presidential rhetorical optimism about the econ- omy devised by Wood (2007), this project is the first to make an important empirical assessment regarding the relationship between economic conditions and political behavior. The current project is the first to evaluate whether presidentia l a dministrations act as a r hetor ical cheerlea der in the face of rising economic policy uncertainty, or instead opt to reflect existing levels of economic policy uncertainty by lowering rhetorical optimism about economic conditions. Such an empir ica l a na lysis is important, as it helps give a n indication as to whether economic policy uncertainty drives the president to adopt a strategy of direct economic leadership, or instead adopt a strategy of responsive economic leadership. …

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